A taxable account is a non tax deferred or tax advantaged account. 401k, 403b, Traditional IRA, and Roth IRA are all tax deferred/advantaged accounts. Opening a "brokerage account" at Fidelity or Vanguard would make sense since you already seem to have accounts there. People tend to put money in these when they have maxxed out what they can do in 401k's, Roth Ira's, etc. But the tax advantaged/deferred account have withdraw limitations by age. If you aren't 59.5 years old, withdrawing from these account can have a 10% penalty. It is best to let these grow anyways, and if you need more money prior to 59.5 years, save some in a taxable brokerage account before you retire. A bank account where you keep your emergency fund is also a taxable account (e.g. you are paying taxes on the interest eared each year at tax time). But a bank acocunt can only hold cash or cash equivalents like CD's. The brokerage account lets you have that plus bonds, stocks, and other things.
One thing to research is whether the 401k plan supports the "rule of 55". This lets you withdraw from that plan at age 55 if you have retired or separated from service. This would relieve the effort to have much in a taxable.
Comments on the portfolio:
In his Roth, I would sell the individual stocks and just put the proceeds in the Fidelity 500 fund within that Roth. The 500 fund is already holding most of these stocks and some say it is already overweight in them. You are even more overweight, and if the tech sector crashes you'll fall harder. This is not a taxable event and simplifies things. I could recommend to use FSKAX instead, as it is a total market fund in not just 500 large companies. So it includes some midsize and smaller companies. This is more diversified, but if you look at recent historical returns, the S&P 500 fund have done better. So the Fidelity 500 fund FXAIX is still a great choice.
Many people here aren't fans of crypto. I dabbled in it some just to see how it works. To me, you should avoid that asset class until you have more "play money" in your portfolio. So I would sell that and put it in a total market fund or an S&P 500 fund. I can't tell if "My Fidelity" is the 401k, or a taxable account. If it is within the 401k or Roth, there are no consequences to selling it and reinvesting into a different fund. If it is a taxable account, you'd need to check the unrealized gains to see if there is a gain or a loss. Gains would be taxable which could change the decision. If minimal gains or you have a loss, then sell.
I would not recommend Raymond James or Edward Jones. Really, I think people need financial advisors about 3 times in their life:
1. When you're young and started a real job. They can help you pick your asset allocation and pick from the available funds in your 401k, 403b, or whatever account you have access to. They can recommend Roth contributions -vs- pretax and when to switch. They should recommend separate Roth Account contributions to the yearly limit if they have extra money to invest.
2. About 5 years prior to retirement. You'll know your spending at this point so you can forecast retirement spending. You can look at your assets and see if you are on track. I would reassess asset allocation and consider going into a more conservative allocation if you have sufficient money and don't want to keep working should a major stock market drop hit just before you plan to retire. This is also a time to forecast RMDs and see if you should Roth convert after you retire or where you should pull money from to avoid tax issues.
3. When you're around 75 years old and legacy planning. Where should money come from for charitable giving? Do you have money that kids will most likely be inheriting? Are you losing your marbles and need a trust or someone to manage your finances?
For these events above, only #3 requires an "advisor" to handle money for you (and that could be kids or others you trust that have financial smarts). Numbers 1 and 2 can be done by hiring an hourly advisor and getting a plan. There is no need to pay someone 1% or more of your assets each year to position your investments. That fee is 33% of your retirement budget if you are planning a 4% withdraw rate. You can even avoid hiring an hourly planner by just reading here and posting questions. It may take you a year or two to feel confident, but your portfolio is fine enough now that doing nothing for a year is fine. Going to Raymond James guarantees you lose 1%, and you will probably lose more because they typically wont get S&P 500 returns in the stock portion and the bond portion probably won't get the returns of an intermediate bond fund.
Finally, how you rebalance is you buy and sell within the tax deferred/advantaged account. For example, lets say you have $100K in a Roth account and $400K in a 401K account and you want a 50/50 stock/bond allocation on that total of $500K. Further, you want to optimize returns by making the roth all stocks. So you invest/move all of the $100K in the Roth into the S&P 500 fund. You need a total of $250K in stocks to be 50/50, so that means you put $150K of your 401K into the S&P 500 fund. The rest of the 401K ($250K) goes into a bond fund. Next year, after things grew for a year, lets say you have $110K in the Roth IRA, $165 in the 401k stock fund, and $260K for a total of $535K. To maintain 50/50 you need 267.5K each in stocks and bonds, So sell/move 3.7K from the 401K S&P 500 fund to the 401k bond fund. This is such a small movement, you could probably also fix it by just adjusting your contributions to be more bond heavy. Getting a bit out of balance isn't a problem (e.g. going from 50/50 to 55/45). If you are over 10 points out of balance (e.g. 60/40 instead of 50/50), then you should probably take steps to rebalance. A main point of rebalancing is to capture gains (sell high) and recover after losses (buy low).
If you go with target date funds, they self balance. But then you kind of need everything to be target date funds. But maybe you don't like the asset allocation the fund manager chose for a given fund, or you don't like the percent of international. You can pick your own asset allocation if you don't like the choices by buying separate US stock, International Stock, and Bond fund and rebalance once a year. This is cheaper too, because the underlying index funds used in the target date fund have lower expense ratios than the total expense ratio of the target date fund.
Oh, and final final...Check the returns of the stable value fund in the 401K. If you get to the point where you want to preserve money at no risk of loss, and it is all tied up in a 401K and can't leave the 401k domain, these can be a good place to put it. Currently, a money market fund is yielding higher than most stable value funds, but many 401k's don't have a money market fund in them. Once money market rates come down, the stable value fund will probably maintain its yield and look more favorable. You may want to put something in there in 5 years. So keep an eye on its return each year to see if it is any good. Also see if there are any restrictions on how much you can take out of your stable value fund at any time, or per year, or other withdraw restrictions.
One thing to research is whether the 401k plan supports the "rule of 55". This lets you withdraw from that plan at age 55 if you have retired or separated from service. This would relieve the effort to have much in a taxable.
Comments on the portfolio:
In his Roth, I would sell the individual stocks and just put the proceeds in the Fidelity 500 fund within that Roth. The 500 fund is already holding most of these stocks and some say it is already overweight in them. You are even more overweight, and if the tech sector crashes you'll fall harder. This is not a taxable event and simplifies things. I could recommend to use FSKAX instead, as it is a total market fund in not just 500 large companies. So it includes some midsize and smaller companies. This is more diversified, but if you look at recent historical returns, the S&P 500 fund have done better. So the Fidelity 500 fund FXAIX is still a great choice.
Many people here aren't fans of crypto. I dabbled in it some just to see how it works. To me, you should avoid that asset class until you have more "play money" in your portfolio. So I would sell that and put it in a total market fund or an S&P 500 fund. I can't tell if "My Fidelity" is the 401k, or a taxable account. If it is within the 401k or Roth, there are no consequences to selling it and reinvesting into a different fund. If it is a taxable account, you'd need to check the unrealized gains to see if there is a gain or a loss. Gains would be taxable which could change the decision. If minimal gains or you have a loss, then sell.
I would not recommend Raymond James or Edward Jones. Really, I think people need financial advisors about 3 times in their life:
1. When you're young and started a real job. They can help you pick your asset allocation and pick from the available funds in your 401k, 403b, or whatever account you have access to. They can recommend Roth contributions -vs- pretax and when to switch. They should recommend separate Roth Account contributions to the yearly limit if they have extra money to invest.
2. About 5 years prior to retirement. You'll know your spending at this point so you can forecast retirement spending. You can look at your assets and see if you are on track. I would reassess asset allocation and consider going into a more conservative allocation if you have sufficient money and don't want to keep working should a major stock market drop hit just before you plan to retire. This is also a time to forecast RMDs and see if you should Roth convert after you retire or where you should pull money from to avoid tax issues.
3. When you're around 75 years old and legacy planning. Where should money come from for charitable giving? Do you have money that kids will most likely be inheriting? Are you losing your marbles and need a trust or someone to manage your finances?
For these events above, only #3 requires an "advisor" to handle money for you (and that could be kids or others you trust that have financial smarts). Numbers 1 and 2 can be done by hiring an hourly advisor and getting a plan. There is no need to pay someone 1% or more of your assets each year to position your investments. That fee is 33% of your retirement budget if you are planning a 4% withdraw rate. You can even avoid hiring an hourly planner by just reading here and posting questions. It may take you a year or two to feel confident, but your portfolio is fine enough now that doing nothing for a year is fine. Going to Raymond James guarantees you lose 1%, and you will probably lose more because they typically wont get S&P 500 returns in the stock portion and the bond portion probably won't get the returns of an intermediate bond fund.
Finally, how you rebalance is you buy and sell within the tax deferred/advantaged account. For example, lets say you have $100K in a Roth account and $400K in a 401K account and you want a 50/50 stock/bond allocation on that total of $500K. Further, you want to optimize returns by making the roth all stocks. So you invest/move all of the $100K in the Roth into the S&P 500 fund. You need a total of $250K in stocks to be 50/50, so that means you put $150K of your 401K into the S&P 500 fund. The rest of the 401K ($250K) goes into a bond fund. Next year, after things grew for a year, lets say you have $110K in the Roth IRA, $165 in the 401k stock fund, and $260K for a total of $535K. To maintain 50/50 you need 267.5K each in stocks and bonds, So sell/move 3.7K from the 401K S&P 500 fund to the 401k bond fund. This is such a small movement, you could probably also fix it by just adjusting your contributions to be more bond heavy. Getting a bit out of balance isn't a problem (e.g. going from 50/50 to 55/45). If you are over 10 points out of balance (e.g. 60/40 instead of 50/50), then you should probably take steps to rebalance. A main point of rebalancing is to capture gains (sell high) and recover after losses (buy low).
If you go with target date funds, they self balance. But then you kind of need everything to be target date funds. But maybe you don't like the asset allocation the fund manager chose for a given fund, or you don't like the percent of international. You can pick your own asset allocation if you don't like the choices by buying separate US stock, International Stock, and Bond fund and rebalance once a year. This is cheaper too, because the underlying index funds used in the target date fund have lower expense ratios than the total expense ratio of the target date fund.
Oh, and final final...Check the returns of the stable value fund in the 401K. If you get to the point where you want to preserve money at no risk of loss, and it is all tied up in a 401K and can't leave the 401k domain, these can be a good place to put it. Currently, a money market fund is yielding higher than most stable value funds, but many 401k's don't have a money market fund in them. Once money market rates come down, the stable value fund will probably maintain its yield and look more favorable. You may want to put something in there in 5 years. So keep an eye on its return each year to see if it is any good. Also see if there are any restrictions on how much you can take out of your stable value fund at any time, or per year, or other withdraw restrictions.
Statistics: Posted by suemarkp — Sun Aug 11, 2024 3:33 pm — Replies 16 — Views 545